Why aggressive intervention may do little to save Argentina's peso

Why aggressive intervention may do little to save Argentina's peso

Michelle Zhu
03/09/18, 11:56 am

SINGAPORE (Sept 3): Fund managers are worrying that the worst has yet to come in Argentina’s peso crisis as big names in the bond market continue to take a beating, according to the Financial Times.   

Based on FT calculations, funds of Franklin Templeton have lost US$1.23 billion ($1.7 billion) on just three of its biggest Argentine positions over the past two weeks.

The US investment group’s “bond king” Michael Hasenstab was reported to have seen his flagship US$36.8 billion Global Bond Fund lose 4.2% in August, and his US$5.4 billion Global Total Return Fund dropping 4.3%.

Argentina’s central bank last week hiked the benchmark interest to 60%, the highest in the world, in a bid to shore up its peso as the currency lost over half its value this year.

Much of the collapse has been attributed to Argentina’s request for the International Monetary Fund (IMF) to expedite the release of a US$50 billion loan.

See: Turkey-led emerging markets rout won't end as well as the Asian financial crisis

But even the country’s dramatic measures of pushing up its interest rate may not be enough to pique investor interest, suggests Edwin Gutierrez, head of EM sovereign debt at Aberdeen Standard Investments.

“This is not a benign world and the willingness of foreign investors to finance Argentina is minimal considering most of us are long… It’s very difficult to find a marginal buyer,” said Gutierrez to FT.

Lukman Otunuga, research analyst at FXTM, believes the near-term outlook for emerging market (EM) currencies including Argentinian peso remains cloudy.

“Emerging market currencies are likely to remain pressured by the economic turmoil in Argentina and Turkey, while external factors ranging from global trade tensions and prospects of higher rates could intensify the pain,” cautions Otunuga in an Aug 31 report.

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